When it comes to setting up a control tower to obtain visibility into the supply chain, companies don't have to go it alone. Third-party logistics service providers (3PLs) offer an alternative to establishing and running their own systems.
For those unfamiliar with the term, a control tower is an information technology system that allows a company to monitor and manage its carriers, logistics service providers, and suppliers. "Control towers are a great tool ... to ensure raw materials and end products are moved in a timely fashion to factories, to distribution centers, and to the end customer," says Alejandro Gonzalez MagÃ¡n, senior director of customer service at DHL Global Forwarding, Americas.
Essential to a control tower's operation is the implementation of an "information hub" that connects a company to its suppliers and carriers. Although a shipper can buy software to do the job, it would then face the task of forging electronic links with all of its supply chain partners and managing the integration between disparate information systems. Because in many cases, a 3PL has already established many of those communication links, the company can simply ride the coattails of its service provider.
"A 3PL will have implemented these technology solutions multiple times over, so we have the framework of a process in place," says Dave Belter, vice president of transportation management at Ryder System Inc. "With the base process already there, we can [just] make configuration changes for the customer."
In addition to providing a technology platform, the 3PL can handle the day-to-day operation of the tower, freeing the customer to focus on strategic issues. "We do see that most of the shippers like the idea of retaining control of their strategy but outsourcing the execution," says Jordan Kass, vice president of management services at C.H. Robinson's TMC division.
MANAGING COMPLEX GLOBAL SUPPLY CHAINS
Control towers first emerged in Europe in the late 1990s. They evolved from managed transportation programs, where 3PLs oversaw the movements of multiple carriers for a shipper client. When 3PLs began managing orders and inventory along with carrier movements, those programs became known as control towers, says Terry Haber, senior vice president of solutions design/business development for Netherlands-based Ceva Logistics.
Multinational companies turned to the use of control towers as a way to manage complex global supply chains. Industry verticals in which control towers are being used today include automotive, aerospace, electronics, paper, food and beverage, and industrial manufacturing.
For the most part, control towers remain the province of large international shippers, which use them to oversee far-flung supply chains across continents. However, Haber has recently seen organizations setting up towers for specific regions, such as Asia. "Now that people are making in a region and selling in a region, we are seeing a trend with regional control towers as part of a global network," he says.
Even so, their use is still far from universal. Only 12 percent of respondents to a recent DC Velocity reader survey said they were operating a control tower or "command center," another name for this type of technology. When those respondents were asked what they used their tower for, 86 percent said it was to manage carriers, while 48 said it was to manage suppliers.
SETTING UP A CONTROL TOWER
Not surprisingly, setting up a control tower takes some prep work on the 3PL's part. "A customer's requirements need to be captured in detail and in depth, and properly documented with process flow maps," says Gonzalez MagÃ¡n. "Service-level agreements, standard operating procedures, work instructions, and varied systems need to be set up."
The contract logistics service provider generally dedicates staff to the client when setting up a control tower. These staffers can then take delivery requests, tender loads to carriers, track shipments, and ensure that schedules are met to maintain supply chain flow.
Besides providing pipeline management, the tower can usually assist in benchmarking carrier and supplier performance. "The customer gets exception reports on how suppliers or 3PLs are performing," says Haber. Other services that a control tower can offer clients include assistance with future scenario planning and supply chain modeling, says Joe Carlier, senior vice president of global sales at Penske Logistics.
One of the biggest advantages of a control tower is its ability to react to changing events and take corrective action. If, say, a hurricane or tsunami jeopardizes a supplier's ability to fill an order, the control tower can reroute the shipment or locate an alternative supplier. "If somebody is going to have a disruption, you can make a decision to redirect through a control tower," says Haber.
Because of the work involved in setting up a control tower, 3PLs generally require multiyear commitments from clients. Shippers usually pay for the service on a transaction basis, as a subscription service, or a combination of the two.
As for the payoff, companies typically see savings in transportation costs—a result of efficiencies related to centralizing logistics operations in the tower. Kass says that for a "mature" shipper, a control tower can result in transportation savings of 5 to 10 percent, while a company that's never used a transportation management system (TMS) and centralized its logistics operations could realize savings of 15 to 25 percent.
Haber offers a more modest estimate of the potential transportation savings. He says an "undisciplined" company could net a 12- to 15-percent savings from a control tower. If a company has been doing a good job with its transportation program, however, then the freight savings would drop to between 1 and 3 percent.
Although freight savings can justify the investment, most companies electing to set up a control tower do so as a way to keep better tabs on their supply chain. "Customers ... see control towers as a value-added service to simplify managing complex supply chain logistics," says Gonzalez MagÃ¡n. "Due to this complexity, it minimizes the risk of not having products on time to end customers."